from Persistent to Consistent

Blog update for 2014 with my dust allergy kicking in big time

Feel like I’ve crawled across the scorching desert, through a swamp and finally blown the dust off a long buried book of magical spells to update this blog. Apologies in advance since this isn’t likely to be short… Previous update was what? Mid-way through last year >6 months ago?

Still, as I’m struggling to get to grips with the fact WordPress has also mutated, it’s worth having a bit of a review of ‘the journey so far’ for anyone picking this up from scratch.

All the funny/scary/horrendous stuff is back in entries from 2011-12 so if you want to hurl rocks or pooh start back there… mm’kay?

Most of what’s below was written in response to a notable trading person asking a really simple question… ‘How is your trading going?’ Seems innocent enough, right? Little did the poor soul know he’d receive a 8+ page response…

I also sent this to Steve at NoBrainerTrades who is also a bit of a legend. All you Price Action junkies go there and get some sanity. Really good comments/feedback I’ll update inline.

There’s several sections in here… If I was a bit smarter I’d I’ll try to split this up a bit…

The story so far… I had this great idea…

I started looking at trading for all the wrong reasons, chiefly to solve the external problem of not having enough money to meet my commitments and radically change my financial circumstances. Little did I realize when I started what a huge personal challenge this would be and the number of blind alleys I would end up running down. It seems I had have a lot of ‘stuff’ to resolve and every one of these problems made up a barrier which I have had work through to the get to the point I’ve reached now.

The silver lining in all of this has been without trading as an engine for change I doubt there would have been anything to really compel me to evolve as a person. Thanks to this pursuit I began meditating which has (on it’s own) transformed my outlook on people and life in general.

This isn’t to say I’m anywhere near ‘done’ but I’m no longer a danger to myself (in trading) and have a proper appreciation of the process I still need to go through to become a consistently profitable trader.

Working full time as a project manager does not really allow me the time to sit in front of the live market. At the moment I focus on replaying historical price moves and using these observations to further reinforce what I have been taught.

So here follows a brief history recap, some s**t I’ve noticed and what’s currently occurring.

Year 1 (Trading is Tic-Tac-Toe)

I probably spent >9 months going in exactly the wrong direction and also bought into some ‘education’ which (it later became clear) was essentially a money making scheme for the vendor. The UK trading education market is woeful and centres around spread-betting as a ‘get rich quick’ scheme without there being anything like realistic expectations. An advantage here however is that profits from spread-betting are tax free. Still this is of no comfort if you keep getting carted every day.

So in short, no methodology, no understanding, no edge and a significant lack of any sort of process. Add in indicator madness/the search for the holy grail as well as me being convinced (at this point) of my own godlike intelligence or superiority and you’ve got a recipe for unmitigated disaster.

Happily I wasn’t in a position to damage myself too badly financially – apart from getting completely ripped off by aforementioned ‘training’

Year 2 (Trading is Checkers)

Moved to ‘somewhat’ acknowledge that possibly I wasn’t as smart as I thought I was and so undertook some low level studying without really having enough knowledge to structure it properly. Started to understand that my own psychology wasn’t helping me at all in my approach to the market and begun meditating on a daily basis. I still meditate every day because of the ridiculously positive effect it’s had on my life.

Was exposed to some proper traders who made it very clear that my approach was woefully inadequate and underpinned by zero knowledge. Still not really sure what I’m looking for on a chart though and unable to hold back from impulsive trading i.e. not thinking through something before hitting the buttons. Favourite approach this year? Trying to fade one way moves without an adequate understanding of why it didn’t work.

Just enough knowledge to be dangerous and overconfident but still safe due to not willing to over-commit without being consistent. Self aware enough to know that consistent isn’t on my list of trading traits at this point.

Winning consists of luck at this point and massively compromised by the fear of missing out approach

Year 3 (Trading is Chess, against yourself)

Finally hooked up with some proper education (Chris Lori) in someone who was able to teach me how to ‘see’ the market and explain what’s actually happening. We’re not in Kansas anymore.

That combined with being exposed to other real traders ideas (Tom Piccin in the UK, Anthony Drager and Mike Bellafiore’s ‘The Playbook’ and the NBT site) plus books like ‘Bounce’ and ‘Mindset’ I actually started to define the process of how to improve without cutting my own throat. More on this below.

By now I’m more interested in becoming ridiculously proficient at this craft (the journey) as opposed to fixing the external issues by some sort of force of will. Still, having learn to play chess there’s a difference between being able to play and being a master… You only get good by playing lots of games within a proper learning structure.

Year 4 (The present moment)

So at this point I’ve defined a feedback model for myself as a way of structurally driving that improvement – this is outlined below

All through the time above I’ve spent looking at FX majors since it’s actually easier to keep tabs on a half dozen of these and the associated macro drivers than attempting to capture/filter stocks/futures price moves without a significant amount of automatic filtering.

This year will be spent building my experience via historical data and continuing to add to my database/diary of trade setups. I’ve built this using Filemaker Pro because you can capture images (charts) and the context of a move rather than trying to fit this into excel or something that it’s difficult to search within…

So with the trade/research dB I need a vastly larger sample size than I’ve currently got but I’ll give you an example of how it’s useful.

The human memory is faulty and suffers from a number of biases. You discount information you don’t like and pay more attention to things that back up a thesis. Just ask any researcher – this is the reason that academic papers require peer review.

I’ve looked at three trades in the last two weeks where I’ve spotted a good level that (imho) should produce a tradeable reaction. Each time the reversal has been front run by 4-5 pips and I’ve not got my fill. Not having a record of these types of events how am I ever going to notice this stuff of improve? My next trade I will know in advance that I need to position my limit +4 above or below what I consider to be the entry point.

Knowing and getting comfortable with this in advance makes all the difference as far as trade management is concerned. This adjustment becomes a reaction to observed market conditions rather than a knee-jerk response to something I may only have a feeling for.

Other Things I’ve learned

The more often a level is tested the weaker it gets, not stronger.

Depending on the price action prior if a level has been tested multiple times it’s more likely to fold than hold. Books, educators and many traders seem to be bought in to the idea that the more often a level is tested the more the ‘market’ will respect it. Does the door get stronger as the SWAT team is bashing it down? Nope…

Emotional Capital in trading is as important as actual capital (well for me anyway)

In fact it may be more important. If you get carted and scared the amount in your trading account and your ability to bounce back will suffer if your emotional capital/resilience is in short supply. I am dealing with this at the moment.

Prediction is for pundits and listening to (99%) of analysts is a waste of time

Having an opinion as to where USDJPY might be in 6 months is all well and fine but it needs to be underpinned by fundamentals data, caveated by possible shifts in central bank monetary policy and not a chart.

Kathy Lien’s FX market commentary is however worth it’s weight in gold if only because she clearly communicates what everyone is looking at. Kathy = legend

Patience. Do not chase price

If you missed the move at the point you wanted to get in then leave it. The bus may reverse back onto you if you chase it down the road. The reason for this is outlined below. Patience also gets you better entries.

The faster/farther price extends the weaker the move becomes, not stronger

Like a water jet the force of the move exists at the base (origin) and not 200 pips above where it broke out from.

As price extends up looking for counterparties this has an effect on orders in the market ahead of or around it and liquidity withdraws away from the spike. What happens next depends primarily on what the price driver actually was and whether you can do anything with this comes down to whether you understand the consequences in a wider context.

Price moves as a function of liquidity

I underlined this one since it’s come to underpin all my trading decisions. If I don’t understand what I’m looking at in the context of this statement then I’m not going to trade it. Thanks to Chris Lori for the lightbulb moment where I finally got this concept

I appreciate that an FX feed doesn’t contain volume data but having spent 2-3 years looking at EURUSD charts I’ve a fairly good appreciation of what/where on a chart there will be a tradeable level based on previous price movements.

Your time-frame is irrelevant (Oooh… Controversial…)

I’ve come to believe that people over-think the issue of time-frames in trading. People will say ‘oh, I only use H1 charts’ because M5 charts are all noise… Wow, really? Just think about that for a minute. Are computer models and algo’s concerned with how we humans have represented price data? What about a M24 chart? Is this more valid than an M30 chart?

The only question is this… What price is optimal to allow me to enter with a high probability that subsequently allows me to reduce my exposure to risk? After that it’s down to trade management and looking at M5 or M1 charts can really tell you a lot about where a ‘safe’ area is when moving stops.

Last one…

You are not trading the market. You are trading the traders who are trading the market

This is somewhat esoteric but this view of the market fits into my worldview nicely so I’ll include it here.

Since we’re all individuals it’s logical that we each have a perception of the world and our experience of it that is unique. No two experiences of life are the same just as no two trades or traders are the same.

We each view what unfolds through the prism of our experience, upbringing, teaching etc. and as with life so with looking at the market. This is where we have to start seeing what’s occurring from the perspective of probabilities and psychology rather than certainty and right/wrong.

If the price gets to point ‘x’ then the probability based on the psychology of the participants indicates that a reaction in a given direction is more likely and the result may well be a trade that wins for you as an individual.

This is a level of abstraction above what or how most people believe the world works let alone applying it to something else. The market doesn’t care about right or wrong in any regard since it’s only there to facilitate trade… You got your fill? Then the market did it’s job. Whatever happens next isn’t it’s concern at all

This view can be extremely useful when looking at a level that ‘everyone’ on twitter or squawk is anticipating will break. Back in October Goldman Sachs published a trade recommendation (which was made public) that called for USDJPY to break 97. This didn’t happen and we’re now banging on 106.

It really comes down to the fact that when the majority of participants expect ‘x’ and it doesn’t happen (e.g. taper as another example) then the reaction will be outsized in the other direction. Disappointment and the fear of being wrong create outsized moves.

Another way of using this is to look at a chart and ask the following question…

‘Where is everyone going to be wrong?’ Go search for Anthony Drager (ref: Market Delta) on this topic and sign up to some of his webinars – he really explains this a lot better than me.

And so to the future…

I’ve come to appreciate more and more what this pursuit of trading has done for me as a vehicle for self development. With this in mind and the structure (database) I’ve created the near term consists of looking at the markets when I have the opportunity, creating ideas and then seeing to what extent those ideas play out

Things to focus on in 2014: –

Execution – I am still not ‘comfortable’ putting on positions

Patience – especially holding on to positions longer

Trade management

More screen time

Resilience

Currently I don’t have the financial cushion to switch from my job to doing this full time and without something approaching consistent profitability that would indeed be foolish. It is a bit of a chicken and egg situation.

A very optimistic timeline would be 18 months before anyone sees significant progress here so don’t all get carried away now. Thanks for reading.

Good to see an update, it has indeed been a while! Most of everything you wrote resonated with me, but you mentioned FX and volume and as I use it, I couldn’t let it go without commenting! Yes there’s no regulated volume in FX like we have with stocks etc but don’t discount tick volume. Given a good source it is very, very reliable! Not wishing to send you down another blind alley with this thought, but just wanted to point it out.

Re: the controversial timeframe statement, this comes back around to what you were saying about being a project manager and not having the time to sit in front of a chart. I’ve been up and down looking at all sorts of time frames, i’m sure most traders have at some stage. There have been times when i’m in work and I grab a quick look at the charts on my phone or whatever. I’m much happier having a quick scan of say an hourly chart and looking at what I consider important areas instead of doing this on a 5min.

I feel this also ties in with one of your aims for this year – holding on to trades for longer. Maybe this is personal opinion (and it depends on your definition of longer) but you’re going to last “longer” in a trade using stops based on say an hourly S/R area than a 5min area which, when scaled up to an hourly could seem irrelevant.

This is all just thoughts I had whilst reading through, good to see you back posting again,

On the volume point I actually managed to blag a demo (quite a while back now) of an LMAX account which had a ladder for FX so you could see bid/offer and volume. This was very educational since it helped re-enforce some ideas on lower timeframes about how/reasons behind spikes into levels etc. etc. and price behavior in general. Don’t get carried away though since the account minimum was a cool $250K…

Yeah, I’ve not really managed to explain myself properly on the timeframe point… I’ll make another attempt in some other post. What I do do (engrish?) is look at areas on an H1 chart where I think there’s a high probability of a tradeable reaction and then look for entries on lower timeframes (e.g. M5/M1 even) with all the fun trade management stuff thrown in after. Still virtually impossible while working though so I may have to bite the swing trade bullet and go from there.

Didn’t see your reply until now sorry, whilst that LMAX account sounds interesting if any of us get to the stage where we have a spare 250k to open an account I think it’d be safe to say we won’t need it!

Re: the timeframes, that sounds more like it to me, and is similar to many VSA styles as well. With the point and figure side of things that i’m doing at the moment, swing trading is very much the name of the game. I’ve been holding positions for a couple of days/nights, even over the weekends, which is a new one for me. I’m happy to say that i’m at the stage with my trading now that I don’t have to worry about stains in my pants when I hold a trade for any length of time. I’ve at least learned that much!

I am currently jumping over my next psychological hurdle in the Grand National of learning to trade. It is recency bias and it is a killer of a hurdle.

It has made me sabotage so many trades now, to the point where I “woke up” and realised that all my little “improvements” were nothing of the sort.

I feel like I am back on track and gonna see how the next three months go. This feels like a big hurdle to clear, because it ruins your trades but it feels like progress. A bit like Heroin I guess. And we all know drugs are bad, mm’kay!

Robert, good to see you’re back. Been keeping half an eye on your site as always. I’ve got an idea. We run a DJIA trade named the “After8”. It has a strong expectancy and is very mechanical and black and white. Why don’t you come and trade it with us for three months and use it as a reference point and measurement for your trading psychology?

We Tweet at 20:00 if the trade is on, you join the webinar at 20:30 and we trade it shortly after. In, out, a loss or a win, then closed for the day. Rinse and repeat and test your current development around risk, taking wins, taking losses and growing your account over three months. I know you struggle for time in the day time.

I really love your Filemaker Pro’s trading journal. I tried finding the template on Filemaker’s site but still no clue. Could you be so kind as to point me in the right direction?
For so long a time, I could never find any trading journal I liked, yours is amazing.

I noted you touched on Filemaker way back in 2011 when I scour your site for any clue prior to asking your help here. I cannot begin to imagine how much effort and time you have put into designing your own template.

Do please take your time. From the few screenshots I have seen here, 1 week is nothing compared to building it myself from scratch.

Yes, I am aware of it. I suppose I would need to ask the guys at Filemaker about it. I’m kind of new to wordpress, do I provide my email address here or is it attached to my account?